ARTICLE
17 November 2022

Small steps before a giant leap: ACCC proposals for ex ante digital platform regulation

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Corrs Chambers Westgarth

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The report considered whether new laws could address competition and consumer law harms in digital platform conduct.
Australia Antitrust/Competition Law
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In its fifth Digital Platforms Services Inquiry (DPSI) report, the ACCC proposes potentially sweeping legislative reforms intended to tackle potential anticompetitive conduct and consumer law contraventions by digital platforms.

Its key recommendations are the introduction of:

  • a general prohibition on unfair trading practices, for which the ACCC has been advocating for some time;

  • targeted measures to protect consumers who use digital platforms, including mandatory processes to prevent and remove scams, harmful apps and fake reviews, mandatory internal dispute resolution processes, and an ombudsman; and

  • 'service-specific' mandatory codes of conduct for 'designated' digital platforms with targeted obligations to prevent a range of anticompetitive conduct including self-preferencing, tying and exclusivity arrangements, and impediments to interoperability.

The proposals are set out at a reasonably high level with several options presented in the report. There are few real surprises, as the proposals are closely modeled on, and extensively refer to, the approaches adopted in the EU, Germany, Japan and the UK (in particular). Key questions remain as to the scope of any new 'service-specific' codes, the digital platforms to which they will apply (and in what circumstances), the precise drafting of any new legal provisions, and how those provisions will be enforced. While the concept of more tightly regulating big tech has broad bipartisan support, whether that support will hold for all of the ACCC's proposals, and the timetable for implementation, is at this time unclear.

The story so far

The ACCC's report is the fifth in a series of reports in its DPSI and considers whether new competition and consumer laws are required to address competition and consumer law harms relating to digital platform conduct.

In several of its previous DPSI reports, the ACCC acknowledged that digital platforms provide valuable services to Australian consumers, but pointed to a number of characteristics of digital platforms that can lead to poor market outcomes, including:

  • strong network effects;

  • significant economies of scale and sunk costs;

  • advantages of scope and expansive ecosystems;

  • barriers to switching; and

  • data disparities.

The ACCC has continued to express its concern that these characteristics can contribute to high barriers to entry and expansion, and a high degree of concentration in digital platform markets.

The ACCC has identified the following types of conduct that can harm consumers of digital platform services:

  • unfair trading practices, including onerous contract terms that can be unilaterally varied by digital platforms without notice or recourse, and 'dark patterns' (i.e. the design of user interfaces intended to manipulate users) that are designed to reduce a consumer's freedom of choice by confusing them or influencing them to take certain actions;

  • scams on digital platforms;

  • the availability of harmful, inappropriate and fraudulent apps on app stores; and

  • the practice of creating, buying and selling fake reviews and otherwise engaging in review manipulation on digital platforms.

A lack of minimum standards, redress and avenues for dispute resolution for consumers and small businesses, in the ACCC's view, compound these problems.

The ACCC is also concerned with the potential for anti-competitive conduct as a result of the high levels of concentration in the supply of app stores, and search, ad tech and social media services. The ACCC believes that concentration in the supply of digital platform services lends itself to digital platforms with market power having a 'particularly strong' ability and incentive to engage in conduct to entrench and extend their substantial market power.

The ACCC is concerned about the following specific types of anticompetitive conduct:

  • self-preferencing;

  • tying;

  • exclusivity arrangements;

  • conduct that impedes switching;

  • impediments to interoperability; and

  • withholding access to important hardware, software, and data inputs.

The ACCC is also concerned about lack of transparency (specifically in relation to ad tech and the app review processes of app stores) and the ability of digital platforms with market power to degrade the quality of the services they offer to business users that compete with the platforms in other areas.

Where to from here?

The ACCC concludes that Australia's current competition and consumer laws do not sufficiently address the specific concerns that arise in respect of digital platform markets.

It considers that addressing conduct through individual matters (i.e. ex post enforcement) is too slow, harm may occur too quickly for individual cases to address, and that a remedy applied in response to a single instance of harmful conduct may not address the underlying source of harm (such as structural issues). It therefore considers that there is a need for new up-front (i.e. ex ante) measures.

This conclusion is arguably premature, at least in relation to the competition law proposals, given that the ACCC has not commenced any market power or other competition law cases, so current laws have never been tested as they apply to digital platforms - and Australian market power laws were only amended in 2017 to make cases easier to prove. Moreover, other international agencies, particularly the European Commission, have recently had success in bringing complex 'dominance' or market power cases against major global platforms under existing, generally applicable laws.

The recommendations

Consumer-facing proposals

These are the ACCC's proposals in brief:

  • A prohibition on unfair practices. The ACCC recommends the introduction of a general prohibition on unfair trading practices not caught by the Australian Consumer Law, for which the ACCC has been advocating for some time. The ACCC previously recommended a prohibition on such unfair practices as part of the original Digital Platform Inquiry (see here). The proposed economy-wide prohibition would apply to 'dark patterns', the collection and use of data, and the imposition of unfair contract terms (see here).

  • Scams. The ACCC recommends: (i) a 'notice-and-action' mechanism to allow users to report a scam or harmful app and to require the digital platform to act, communicate its actions, share information with relevant agencies, and offer redress; (ii) verification of certain business users, including advertisers, app developers and merchants; and (iii) public reporting on mitigation efforts.

  • With respect to fake ratings or reviews and the manipulation of ratings or reviews, the ACCC proposes requiring digital platforms to: (i) provide an avenue for consumers to report fake reviews; (ii) publish information on their review verification processes; and (iii) report on mitigation efforts.

  • The ACCC also proposes setting minimum standards for internal dispute resolution processes, including to provide an ability to escalate disputes to an independent ombuds scheme. The standards would include accessibility, timeliness, accountability, the ability to speak to a human representative, and transparency of processes and outcomes.

Those proposals would likely be included within the existing Australian Consumer Law.

Competition law proposals

The ACCC considers that the form of any new regulatory regime for protecting and promoting competition in digital platform markets should be:

  • flexible, to account for the dynamic nature of the markets;

  • targeted, applying to those digital platforms with the ability and incentive to harm competition, and to the specific (and most significant) competition issues; and

  • clear and certain.

The ACCC recommends that ex ante competition obligations should be implemented through mandatory 'service-specific' codes. Those codes would focus on the following overarching principles:

  • competition on the merits;

  • informed and effective consumer choice; and

  • fair trading and transparency for users of digital platforms.

While those objectives and principles are objectively reasonable, all of the complex work is still to be done in designing codes that are effective, fair, adaptable enough to keep pace with fast moving digital markets, and do not distort competition among digital platforms, deter investment, or create tensions with regulatory obligations imposed in other jurisdictions.

The codes would apply to digital platforms that meet 'designation' criteria in respect of specific digital services they supply. Where a digital platform meets the designation criteria, designation would apply both in respect of the digital platform itself and a service (or services) it supplies (e.g. a platform might be designated in its role as an app store provider).

Designation could be based on consideration of one or both of the following:

  • quantitative criteria: e.g. 'minimum thresholds' based on user numbers or revenue; and/or

  • qualitative criteria: e.g. relevant characteristics, such as the importance of the digital platform as an intermediary, or its market power.

The ACCC has suggested that designation would follow a consultation process.

The ACCC has identified a range of conduct that may have anticompetitive impacts. The targeted ex ante regulatory obligations would be designed to limit the scope for such anticompetitive conduct and proactively promote competition by addressing barriers to entry and expansion, and ensuring fair treatment of business users. The ACCC believes that the ex ante obligations would address systemic issues in a way that current competition laws cannot, but they also provide a degree of autonomy over digital platform regulation that is insulated to some degree from legislative approval or judicial review.

The types of conduct in focus may include:

Types of conduct

Possible prohibitions?

Examples of measures to address similar conduct overseas

Anticompetitive self-preferencing

Prohibiting digital platforms from providing favourable treatment to their own apps in app stores, search result rankings, or using commercially sensitive data collected from app review processes to develop their own apps (e.g. through data separation requirements)

Yes - EU, Germany, US (proposed)1

Anticompetitive tying

Prohibiting digital platforms from requiring app developers to use their first party in-app payment systems as a condition of using their app stores

Yes - EU, Germany, UK, South Korea, US (proposed)

Pre-installation agreements and defaults

Mandating browser choice screens, or other measures to allow default services to be changed, to reduce barriers to entry

Yes - EU, UK, US (proposed)

Frustrating consumer switching

Codes for search services, mobile operating system services or app store services could prohibit digital platforms from using 'dark patterns' to confuse consumers into choosing options they do not prefer or restrict consumers' ability to change defaults and/or switch to alternative services

Yes - EU, UK, US (proposed)

Denying interoperability

Provisions to require digital platforms to provide third-party providers of apps and services with reasonable and equivalent access to hardware, software, and functionality

Yes - EU, UK, US (proposed)

Data-related barriers to entry and expansion

Provisions targeted at data portability, access, or separation measures (subject to management of privacy and security risks)

Yes - EU, US (proposed)

Lack of transparency in some digital platform services

Mandating greater transparency in app review processes; and provisions to make certain information widely available and freely accessible to market participants, the public or the relevant regulator

Yes - EU, Japan, US (proposed)

Unfair dealing with business users

Provisions to ensure that terms and conditions do not unreasonably prevent business users from exercising or enforcing their legal rights, or to address the superior bargaining power of digital platforms, which enables them to behave unilaterally to the detriment of business users

Yes - EU

Exclusive agreements and price parity clauses with business users

Provisions to prevent an intermediary digital platform from using blanket exclusivity or price parity clauses

Yes - EU, US (proposed)

The development of such codes will be subject to further analysis and consultation. Most of the detail required to assess potential burdens on market participants, designation and implementation challenges, and compliance and enforcement difficulties is currently missing from the ACCC's report.

The ACCC acknowledges that the need to develop multiple service-specific codes may also increase implementation time and the resources it requires to progress and administer the codes. We anticipate that this report is the first step in a lengthy journey to develop these new rules.

Additional points to note

  • The proposed codes targeting competition issues may sit outside of the current Competition and Consumer Act 2010 (Cth).

  • The new legislative proposals would be supported by enhanced information gathering and monitoring powers, including to permit information gathering from digital platforms' overseas parent companies or related bodies corporate.

  • The ACCC anticipates that there will need to be significant penalties for breaches, consistent with similar regulations developed overseas. New enforcement tools may also be required as pecuniary penalties and court-injunctive relief may not always deter breaches in the ACCC's view. The ACCC has also put both additional behavioural and structural remedies on the table (in-line with the approach in the EU).

  • The ACCC intends to publish guidance materials to assist compliance and give additional clarity to the market.

  • The ACCC intends for there to be an exemption mechanism to mitigate the risk of unintended consequences. However, like other measures, there is currently limited information about the scope and application of such an exemption mechanism.

  • The ACCC anticipates close cooperation and consultation with the Australian Government and domestic regulatory agencies (such as the ACMA and OAIC), given the overlapping roles of those agencies.

  • Given the ACCC's reliance on and references to the approaches in the EU, UK and Japan, the ACCC sees considerable benefit in engaging with overseas agencies. It asserts that doing so would reduce the potential regulatory burden placed on digital platforms (as international approaches would be better-aligned) and ensure that any pro-competitive changes implemented overseas would also be rolled out in Australia.

Footnote

1 The examples of measures identified in respect of the US are proposals currently before the US legislature and they have not yet passed into law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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